Back in February of this year, writing about the history of turning-point elections, Steve Fraser asked a question, but didn't answer it: Would campaign 2008, he wondered, turn out to be a rare presidential election of historic proportions? After all, the Democrats had recaptured the House and Senate only months before — and mightn't that have been "a signal" on the horizon of such an upcoming electoral turning point? Just ten months later, in a new economic moment, he's ready to answer his question, definitively.

Even in an American culture notorious for its loss of memory, there are certain happenings no one forgets, and the Great Depression of the 1930s is one of those. Yet, in the media, just about no one dares to utter the "D" word because of its terrifying and toxic associations. And yet, Fraser argues, the onrushing economic crisis, now apparent to all, could indeed be hightailing in exactly that direction, while the Bush administration and leading Republican presidential candidates say virtually nothing about the economic storm clouds gathering. At the same time — as the recent headlines about the new National Intelligence Estimate on the Iranian nuclear program indicate — the politics of fear on which this administration has maintained so much of its power, and on which Republican presidential candidates seem to depend so completely, is eroding all around us.

Every week, almost every day, another clue suggests that we may be entering a new political environment. Only last week, for instance, the nonpartisan Pew Hispanic Center released a new poll, indicating that Republican gains of recent years among Hispanic voters have been more than wiped out. In July 2006, only 49% of such voters favored Democrats, while 28% favored Republicans, a gap of 21%. Less than a year and a half later, that gap is 34% and undoubtedly rising — no small matter in potential swing states like Colorado, New Mexico, and even Florida. So consider, with Fraser, who has written a striking history of Wall Street, Every Man a Speculator, just what kinds of political and economic storms may lie ahead in 2008.

The Perfect Storm of Campaign 2008

War, Depression, and Turning-Point Elections
By Steve Fraser
Will the presidential election of 2008 mark a turning point in American political history? Will it terminate with extreme prejudice the conservative ascendancy that has dominated the country for the last generation? No matter the haplessness of the Democratic opposition, the answer is yes.

With Richard Nixon's victory in the 1968 presidential election, a new political order first triumphed over New Deal liberalism. It was an historic victory that one-time Republican strategist and now political critic Kevin Phillips memorably anointed the "emerging Republican majority." Now, that Republican "majority" finds itself in a systemic crisis from which there is no escape.

Only at moments of profound shock to the old order of things — the Great Depression of the 1930s or the coming together of imperial war, racial confrontation, and de-industrialization in the late 1960s and 1970s — does this kind of upheaval become possible in a political universe renowned for its stability, banality, and extraordinary capacity to duck things that matter. The trauma must be real and it must be perceived by people as traumatic. Both conditions now apply.

War, economic collapse, and the political implosion of the Republican Party will make 2008 a year to remember.

The Politics of Fear in Reverse

Iraq is an albatross that, all by itself, could sink the ship of state. At this point, there's no need to rehearse the polling numbers that register the no-looking-back abandonment of this colossal misadventure by most Americans. No cosmetic fix, like the "surge," can, in the end, make a difference — because large majorities decided long ago that the invasion was a fiasco, and because the geopolitical and geo-economic objectives of the Bush administration leave no room for a genuine Iraqi nationalism which would be the only way out of this mess.

The fatal impact of the President's adventure in Iraq, however, runs far deeper than that. It has undermined the politics of fear which, above all else, had sustained the Bush administration. According to the latest polls, the Democrats who rate national security a key concern has shrunk to a percentage bordering on the statistically irrelevant. Independents display a similar "been there, done that" attitude. Republicans do express significantly greater levels of alarm, but far lower than a year or two ago.

In fact, the politics of fear may now be operating in reverse. The chronic belligerence of the Bush administration, especially in the last year with respect to Iran, and the cartoonish saber-rattling of Republican presidential candidates (whether genuine or because they believe themselves captives of the Bush legacy) is scary. Its only promise seems to be endless war for purposes few understand or are ready to salute. To paraphrase Franklin Delano Roosevelt, for many people now, the only thing to fear is the politics of fear itself.

And then there is the war on the Constitution. Randolph Bourne, a public intellectual writing around the time of World War I, is remembered today for one trenchant observation: that war is the health of the state. Mobilizing for war invites the cancerous growth of the bureaucratic state apparatus and its power over everyday life. Like some over-ripe fruit this kind of war-borne "healthiness" is today visibly morphing into its opposite — what we might call the "sickness of the state."

The constitutional transgressions of the executive branch and its abrogation of the powers reserved to the other two branches of government are, by now, reasonably well known. Most of this aggressive over-reaching has been encouraged by the imperial hubris exemplified by the invasion of Iraq. It would be short-sighted to think that this only disturbs the equanimity of a small circle of civil libertarians. There is a long-lived and robust tradition in American political life always resentful of this kind of statism. In part, this helps account for wholesale defections from the Republican Party by those who believe it has been kidnapped by political elites masquerading as down-home, "live free or die" conservatives.

Now, add potential economic collapse to this witches brew. Even the soberest economy watchers, pundits with PhDs — whose dismal record in predicting anything tempts me not to mention this — are prophesying dark times ahead. Depression — or a slump so deep it's not worth quibbling about the difference — is evidently on the way; indeed is already underway. The economics of militarism have been a mainstay of business stability for more than half century; but now, as in the Vietnam era, deficits incurred to finance invasion only exacerbate a much more embracing dilemma.

Start with the confidence game being run out of Wall Street; after all, the subprime mortgage debacle now occupies newspaper front pages day after outrageous day. Certainly, these tales of greed and financial malfeasance are numbingly familiar. Yet, precisely that sense of déjà vu all over again, of Enron revisited, of an endless cascade of scandalous, irrational behavior affecting the central financial institutions of our world suggests just how dire things have become.

Enronization as Normal Life

Once upon a time, all through the nineteenth century, financial panics — often precipitating more widespread economic slumps — were a commonly accepted, if dreaded, part of "normal" economic life. Then the Crash of 1929, followed by the New Deal Keynesian regulatory state called into being to prevent its recurrence, made these cyclical extremes rare.

Beginning with the stock market crash of 1987, however, they have become ever more common again, most notoriously — until now, that is — with the dot.com implosion of 2000 and the Enronization that followed. Enron seems like only yesterday because, in fact, it was only yesterday, which strongly suggests that the financial sector is now increasingly out of control. At least three factors lurk behind this new reality.

Thanks to the Reagan counterrevolution, there is precious little left of the regulatory state — and what remains is effectively run by those who most need to be regulated. (Despite bitter complaints in the business community, the Sarbanes-Oxley bill, passed after the dot.com bubble burst, has proven weak tea indeed when it comes to preventing financial high jinks, as the current financial meltdown indicates.)

More significantly, for at least the last quarter-century, the whole U.S. economic system has lived off the speculations generated by the financial sector — sometimes given the acronym FIRE for finance, insurance, and real estate). It has grown exponentially while, in the country's industrial heartland in particular, much of the rest of the economy has withered away. FIRE carries enormous weight and the capacity to do great harm. Its growth, moreover, has fed a proliferation of financial activities and assets so complex and arcane that even their designers don't fully understand how they operate.

One might call this the sorcerer's apprentice effect. In such an environment, the likelihood and frequency of financial panics grows, so much so that they become "normal accidents" — an oxymoron first applied to highly sophisticated technological systems like nuclear power plants by the sociologist Charles Perrow. Such systems are inherently subject to breakdowns for reasons those operating them can't fully anticipate, or correctly respond to, once they're underway. This is so precisely because they never fully understood the labyrinthine intricacies and ramifying effects of the way they worked in the first place.

Likening the current subprime implosion to such a "normal accident" is more than metaphorical. Today's Wall Street fabricators of avant-garde financial instruments are actually called "financial engineers." They got their training in "labs," much like Dr. Frankenstein's, located at Wharton, Princeton, Harvard, and Berkeley. Each time one of their confections goes south, they scratch their heads in bewilderment — always making sure, of course, that they have financial life-rafts handy, while investors, employees, suppliers, and whole communities go down with the ship.

What makes Wall Street's latest "normal accident" so portentous, however, is the way it is interacting with, and infecting, healthier parts of the economy. When the dot.com bubble burst many innocents were hurt, not just denizens of the Street. Still, its impact turned out to be limited. Now, via the subprime mortgage meltdown, Main Street is under the gun.

It is not only a matter of mass foreclosures. It is not merely a question of collapsing home prices. It is not simply the shutting down of large portions of the construction industry (inspiring some of those doom-and-gloom prognostications). It is not just the born-again skittishness of financial institutions which have, all of sudden, gotten religion, rediscovered the word "prudence," and won't lend to anybody. It is all of this, taken together, which points ominously to a general collapse of the credit structure that has shored up consumer capitalism for decades.

Campaigning Through a Perfect Storm of Economic Disaster

The equity built up during the long housing boom has been the main resource for ordinary people financing their big-ticket-item expenses — from college educations to consumer durables, from trading-up on the housing market to vacationing abroad. Much of that equity, that consumer wherewithal, has suddenly vanished, and more of it soon will. So, too, the life-lines of credit that allow all sorts of small and medium-sized businesses to function and hire people are drying up fast. Whole communities, industries, and regional economies are in jeopardy.

All of that might be considered enough, but there's more. Oil, of course. Here, the connection to Iraq is clear; but, arguably, the wild escalation of petroleum prices might have happened anyway. Certainly, the energy price explosion exacerbates the general economic crisis, in part by raising the costs of production all across the economy, and so abetting the forces of economic contraction. In the same way, each increase in the price of oil further contributes to what most now agree is a nearly insupportable level in the U.S. balance of payments deficit. That, in turn, is contributing to the steady withering away of the value of the dollar, a devaluation which then further ratchets up the price of oil (partially to compensate holders of those petrodollars who find themselves in possession of an increasingly worthless currency). As strategic countries in the Middle East and Asia grow increasingly more comfortable converting their holdings into euros or other more reliable — which is to say, more profitable — currencies, a speculative run on the dollar becomes a real, if scary, possibility for everyone.

Finally, it is vital to recall that this tsunami of bad business is about to wash over an already very sick economy. While the old regime, the Reagan-Bush counterrevolution, has lived off the heady vapors of the FIRE sector, it has left in its wake a de-industrialized nation, full of super-exploited immigrants and millions of families whose earnings have suffered steady erosion. Two wage-earners, working longer hours, are now needed to (barely) sustain a standard of living once earned by one. And that doesn't count the melting away of health insurance, pensions, and other forms of protection against the vicissitudes of the free market or natural calamities. This, too, is the enduring hallmark of a political economy about to go belly-up.

This perfect storm will be upon us just as the election season heats up. It will inevitably hasten the already well-advanced implosion of the Republican Party, which is the definitive reason 2008 will indeed qualify as a turning-point election. Reports of defections from the conservative ascendancy have been emerging from all points on the political compass. The Congressional elections of 2006 registered the first seismic shock of this change. Since then, independents and moderate Republicans continue to indicate, in growing numbers in the polls, that they are leaving the Grand Old Party. The Wall Street Journal reports on a growing loss of faith among important circles of business and finance. Hard core religious right-wingers are airing their doubts in public. Libertarians delight in the apostate candidacy of Ron Paul. Conservative populist resentment of immigration runs head on into corporate elite determination to enlarge a sizeable pool of cheap labor, while Hispanics head back to the Democratic Party in droves. Even the Republican Party's own elected officials are engaged in a mass movement to retire.

All signs are ominous. The credibility and legitimacy of the old order operate now at a steep discount. Most telling and fatal perhaps is the paralysis spreading into the inner councils at the top. Faced with dire predicaments both at home and abroad, they essentially do nothing except rattle those sabers, captives of their own now-bankrupt ideology. Anything, many will decide, is better than this.

Or will they? What if the opposition is vacillating, incoherent, and weak-willed — labels critics have reasonably pinned on the Democrats? Bad as that undoubtedly is, I don't think it will matter, not in the short run at least.

Take the presidential campaign of 1932 as an instructive example. The crisis of the Great Depression was systemic, but the response of the Democratic Party and its candidate Franklin Delano Roosevelt — though few remember this now — was hardly daring. In many ways, it was not very different from that of Republican President Herbert Hoover; nor was there a great deal of militant opposition in the streets, not in 1932 anyway, hardly more than the woeful degree of organized mass resistance we see today despite all the Bush administration's provocations.

Yet the New Deal followed. And not only the New Deal, but an era of social protest, including labor, racial, and farmer insurgencies, without which there would have been no New Deal or Great Society. May something analogous happen in the years ahead? No one can know. But a door is about to open.